Shares of Blackbaud (BLKB) are under pressure on Tuesday morning after an analyst said the company is facing a threat from Salesforce (CRM), which announced plans to combine its nonprofit organization with the parent company. Blackbaud is a supplier of software and services specifically designed for nonprofit organizations.
SALESFORCE TO INTEGRATE NON-PROFIT ORGANIZATION: On Monday, Salesforce announced plans to integrate Salesforce.org, its philanthropic arm, into the parent company. Salesforce will pay $300M for all shares of Salesforce.org, which will transition from a California public benefit corporation into a business corporation. The $300M will go to the Salesforce.com Foundation, an independent nonprofit, and be distributed philanthropically. As part of the merger, Salesforce said it will create a new nonprofit and education vertical led by Salesforce.org CEO Rob Acker. The new business vertical will manage sales and marketing efforts for the Salesforce Customer Success Platform and also the development of new vertical-focused cloud apps for nonprofit, education and philanthropy organizations.
"Combining Salesforce and Salesforce.org into a new nonprofit and education vertical reinforces the strength of Salesforce's philanthropic model," the company said in a statement. "Salesforce will extend this model by continuing to provide free and highly discounted software to nonprofits and education institutions around the world and investing in local communities through employee volunteering, strategic grants and matching employee giving up to $5,000 per employee annually."
DEAL SEEN INCREASING COMPETITIVENESS AGAINST BLACKBAUD: Following the Salesforce news, DA Davidson analyst Rishi Jaluria weighed in, maintaining his Neutral rating and $75 price target on Blackbaud. In a research note to investors, the analyst noted that Salesforce.org's 38% subscription growth rate is "significantly" higher than Blackbaud's forecasted organic recurring growth rate of 5%-6%, suggesting that Salesforce.org is a "share gainer" in nonprofit software.
Jaluria also warned that the expected Salesforce investment increase in the nonprofit cloud space "could increase competitiveness" against BlackBaud's Raiser's Edge NXT longer-term and feels Salesforce will pursue more subvertical opportunities within nonprofit software, especially education, which could be another negative for Blackbaud. However, the analyst sees "enough differentiation" in the near-term not to produce a significant change in competition.
For now, Jaluria said he remains in "wait-and-see" mode with Blackbaud, as he wants to see evidence that organic growth can accelerate to double digits before becoming more constructive on the name.
PRICE ACTION: In morning trading, shares of Blackbaud are down 3.6% to $79.33.